Why CPAs Need to Pay Attention to the Fast-Changing ESG Regulatory Landscape

My Takeaways from the CPA.com ESG Symposium

The second annual AICPA and CPA.com ESG Symposium brought together top ESG leaders to exchange ideas and discuss the accounting profession’s critical role within the ESG category and the growing opportunity for ESG services.

The event furthered CPA.com’s efforts to enable accounting firms to understand the ESG landscape better and embrace the related opportunity. Other recent efforts by CPA.com include an ESG-focused cohort in the 2022 AICPA and CPA.com Startup Accelerator and our collaborative program to accelerate accounting firms’ growth in ESG advisory services.

According to the CEO of CPA.com, Erik Asgiersson, “A top 10 [accounting] firm sees this opportunity [ESG] as a couple of hundred million dollar practice.” The same sense of optimism was reiterated by other top 100 accounting firms, signaling the opportunity for firms of all sizes to capitalize on expanding their ESG practice.

Here are my five key takeaways from the event, highlighting the opportunities for CPA firms—both large and small to help their clients keep pace with ESG regulatory developments and grow their firms.

1. ESG Regulatory Landscape is Changing Fast, Companies Need ESG Partners to Get Ready For Compliance

The ESG Symposium came amidst the approval of the U.S.’s first climate disclosure regulations, California’s SB 253 and SB 261. SB 253 will require any company doing business in California with over $1 billion in revenue to report on their carbon footprint and get assurances. SB 261 will require any company doing business in California with over $500 million in revenue to report on their climate risks, both beginning in 2026.  

The SEC’s proposed climate disclosure rules and E.U.’s Corporate Sustainability Reporting Directive and their requirements for 3^rd party assurance were also discussed widely. Together, they will require approximately 65,000 companies to report their ESG data and get verified by a third-party auditor, indicating a global shift toward transparent sustainability reporting.

The role of assurance in these new regulations indicates that CPAs have a pivotal role to play in this space and should begin to build their climate and ESG assurance offerings now to meet upcoming demand.

Additionally, the global convergence around the International Sustainability Standards Board (ISSB) standards, which are designed as accounting standards and expected to eventually affect over 110,000 companies, has simplified the disclosure landscape. Making it easier for CPAs to provide assurance under ESG reporting services.

My Takeaway: Regulatory changes in the ESG sector are moving at lightning speed. I see a huge opportunity for CPA firms to o be the trusted advisor for climate and ESG performance measuring and reporting.

2. CPA ESG Assurance Engagements Are an Opportunity for Growth

Despite being best equipped for the job, CPA firms saw a decline in assurance engagements from 63% in 2019 to 57% in 2021. However, with the expected growth in the ESG assurance services market from $1.54 billion in 2022 to $5.89 billion by 2028 due to new regulatory attestation requirements, firms are starting to prepare now for increasing ESG assurance opportunities. In an AICPA survey of 27 of the top 100 U.S. accounting firms, 84% of firms not currently providing ESG assurance services said they’re very likely or likely to do so in the next one to three years, up from just 43% in the same survey 2-years-ago.

Plus, despite releasing a profession-agnostic global sustainability assurance standard designed for both accountants and non-accountants, public accounting firms may benefit from the proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, set to be released in 2024.

My Takeaway: The landscape is ripe for firms who can proactively gear up their ESG assurance offerings to meet the upcoming surge in demand.

3. CPA Firms Are Primed to Win the Market, CPA.com Practice Development Program Can Help

Despite the recent politicization surrounding ESG, objective measurement and reporting will always be needed for investors and other stakeholders to assess risks and base decisions on.  Public accounting firms can be the key contributor to this performance and risk management process.

Collaborations with ESG firms like the CPA Practice Development Program launched by CPA.com and Good.Lab further enhances the role of CPA firms in accelerating ESG advisory services. Helping firms build their ESG brand reputation and giving them access to a variety of necessary ingredients to accelerate their ESG service offering.

My Takeaway: CPA firms are ideally placed to win the ESG serviced market A strong lea— collaborations like the one between my company, Good.Lab and CPA.com can help accelerate traction.

4. CPA Firms Should Pioneer a Next-Gen ESG Model to Capitalize on the ESG Opportunity

CPA firms are experiencing some internal and external pushback on ESG. Some think shifting the narrative from the controversial term “ESG” to sustainability allows firms to sidestep any anti-ESG pushback while still focusing on the core elements of sustainability.

Getting over that first hurdle allows companies to start building out their ESG offering, which should include more than just assurance. Very few accounting firms are doing sustainable strategies and building plans for customers, which is a very big opportunity for growth.  

When building an ESG practice to ensure long-term success, firms should consider the following:

• A strong leader with support from the executive team to develop strategies, deal with conflicting priorities, and decide when to buy, build, or partner.
• Establish your ESG practice independently of industry or function, promoting interdisciplinary collaboration and mirroring customer needs.
• Meet the market where demand currently is. Middle-market companies primarily need ESG program development, starting with ESG assessments, before seeking assurance services.
• Partnering with the right technology vendors enhances ESG solutions by merging expertise with technology, catering to the middle market’s growing needs.
• Successful firms provide a comprehensive, technology-driven ESG solution that covers everything from initial program building to data assurance, meeting diverse market needs.

My Takeaway: Offering comprehensive ESG solutions will improve client relationships and establish CPA firms as the go-to sustainability strategists.

5. How CPA Firms Can Meet the Rising ESG Needs of the Middle Market, Driven by Supply Chain Pressures

The growing needs of the middle market are driving demand for ESG information and assurance. Project spending on ESG business services is expected to grow from m $37.7 billion in 2023 to nearly $65.0 billion in 2027, representing a CAGR of 14.9%. The primary driving force for mid-market companies is pressure to report from supply chain partners.

CPA firms’ clients are receiving requests for ESG data from supply chain partners and customers, primarily in the form of climate data for now. With the inclusion of Scope 3 and other supply chain metrics in the California climate bills and EU legislation, small and medium-sized companies should expect more requests for climate information.  

These customer requests for climate data will likely be the number one pressure for CPA clients, however, as sustainability risks become more prominent. ESG risk could become the number one reason companies are sharing ESG data.

Top 100 CPA firms are uniquely positioned to meet this demand increase for ESG services from the mid-market. They should start building their suite of ESG offerings today to meet that future demand.

My Takeaway: We are seeing middle-market companies, driven by supply chain pressures increasingly become influential in shaping the need for ESG services. Top 30 CPA firms should take this as a golden opportunity to offer tailored ESG solutions that serve this surging market segment.

The CPA.com ESG Symposium reinforced that the ESG sector is burgeoning with opportunities and complexities alike. As regulations evolve and societal demands shift, CPA firms must not only adapt but also seize the emerging opportunities in ESG advisory, assurance, and strategic planning. Interested in expanding your firm’s ESG practice? Contact us for a consultation with our partnerships team.